Strategic

Marketing
Chapter: 04
Internal Analysis:
Resources, Capabilities, and Core
Competencies
Agend
a
1. Core Competencies
2. The Resource-Based View
• Two Critical Assumptions
• The VRIO Framework
• Isolating Mechanisms: How to Sustain a Competitive Advantage
3. The Dynamic Capabilities Perspective
4. The Value Chain Analysis
The Headphone War
Dr. Dre’s Core
Competency:
•Coolness Factor
Andre Young became the first hip-hop billionaire after Apple acquired
Beats Electronics for $3 billion.
• Founded in 2008, Beats Electronics is known globally for its premium
consumer headphones
• Since 2014, the company also offers the streaming music
subscription
service ‘Beats Music’
• However, the sound quality of Beats headphones is considered poor in
comparison to other premium-brands: Bose, JBL, Sony, Audio-Technica etc.
• Why then would Apple pay $3 billion to acquire Beats Electronics?
• First, Apple is hoping that some of Beats’ coolness will spill over to its brand
• Second, Apple wanted ‘Beats Music’ to be added with ‘iTunes’
4.1 Core
Competencies
• Firm’s ability to gain and sustain competitive advantage mostly depends on core
competencies
• Core competencies are Unique strengths that are embedded deep within a firm
• It allows a firm:
 to differentiate its products and services from those of its rivals
 to create higher value for the customer or
 to offer products and services of comparable value at lower cost
• So what are core competencies of Beats by Dr. Dre?
 It functions as a fashion statement that communicates coolness
 It created a blue ocean by building a distinctive brand image & holds 65% market share in
premium headphone market
• Core competencies of Honda?
 Engineering know-how: small yet powerful engine
 Honda’s business model is to find a place to put its engines
Examples of Core
Competencies
Amazon.com:
Superior IT capabilities: Largest selection of items online
Fastest delivery: Global supply-chain ecosystem
Superior customer service: Cloud computing (AWS)
Coca-Cola:
Superior marketing and distribution
Global availability of products
Facebook:
Superior IT capabilities to provide global network (2.2 billion)
Superior algorithms to offer targeted online ads.
ExxonMobil:
Superior at discovering and exploring fossil-fuel–based
energy sources globally.
Linking Core Competencies, Resources,
Capabilities, and Activities
• Core competencies are developed through
the interplay of resources, capabilities and
activities.
• Resources, either tangible or intangible,
that a firm can draw when creating and
executing a strategy. Such as cash,
buildings, machinery, or intellectual
property etc.
• Capabilities, intangible by nature, are the
organizational and managerial skills
necessary to manage a diverse set of
resources and to deploy them strategically.
• Activities are distinct and fine-grained
business processes such as order taking,
delivery, customer service etc.
Tangible vs. Two basic
Intangible resources assumptions

i) Resource heterogeneity:
A firm should be a bundles of resources, capabilities,
and competencies differ
ii) Resource immobility:
Resources tend to be “sticky” and don’t move easily
from firm to firm
The VRIO
Framework
A theoretical framework that explains and predicts firm-level
competitive advantage. It is used to assess the competitive implications
of a firm’s resources.
• Valuable
• Rare
• Costly to Imitate.
• Organized
The VRIO
Framework
• VALUABLE: A resource is valuable if it helps a firm exploit an external
opportunity or offset an external threat.
• RARE: A resource is rare if only one or a few firms possess it.
• COSTLY TO IMITATE: A resource is costly to imitate if firms that do not
possess the resource are unable to develop or buy the resource at a
reasonable price.
• ORGANIZED TO CAPTURE VALUE: A firm should have an effective
organizational structure and coordinating systems to fully exploit the
competitive potential of its resources, capabilities, and competencies.
How to Sustain a Competitive
Advantage?
Barriers to imitation that prevent rivals from competing away the
advantage a firm may enjoy.
1. Better expectations of future resource value
2. Path dependence.
3. Causal ambiguity.
4. Social complexity.
5. Intellectual property (IP) protection
Blue Ocean
Strategy
• What: https://www.youtube.com/watch?v=5Xd5lvyWMe8
• How: https://www.youtube.com/watch?v=7rFGmHJFwsU
How to Sustain a Competitive
Advantage?
1. Intellectual property protection: Coke & KFC’s secret formula
2. Patent & licenses: Pharmaceutical industry produces two types of medicines - Generic vs.
Molecule
3. Distribution network: Nokia, Samsung vs. Oppo, Vivo
4. Exclusive sales right: Flipkart, Amazon
5. Economics of scale: buy in bulk – sale more in less margin per unit but gross margin will be
higher. For example: Walmart & Big Bazar
6. High capital investment: Jio Mobile in India
7. Proprietary technology: Windows, MS Office etc.
8. Excellent customer service/ customization/ after sales service: Domino’s Pizza in 30 min!!
9. Brand equity: Honda, Mobil, Maggie.
10. Loyalty beyond logic: Hamdard vs. Baidyanath in Hyderabad
For details: https://www.youtube.com/watch?v=7rFGmHJFwsU
How will you create a blue Ocean for Yellow
Clothing?
Strategy Highlight
4.1
Applying VRIO:
The Rise and Fall of Groupon (P# 117-18)
What is Groupon? https://www.youtube.com/watch?v=_xgPtqT0XBY
Rise & Fall: https://www.youtube.com/watch?v=muleilXO8G0

Class Case:
The Secret Behind Coca-Cola Marketing Strategy
https://www.youtube.com/watch?v=XhMVWzVXNNk
Thank
You !!